**4. Empirical studies on capital regulation and bank risk**

The relationship between bank capital level and risk management is the most studied issue after the capital regulation regime. The empirical evidence provides useful insights about the factors affecting the risk undertaking of the banks. However, the studies focusing on the relationship between capital, risk management, and performance found contrasting results. Several studies found, in effect, that capital regulation stimulates the banks to take excessive risk through allowing the banks to increase riskier investment with the increase of bank capital [6]. Regulatory restriction, lower rate of return, riskier portfolio, and deposit insurance are the major causes identified behind the positive association between risk and capital regulations [15, 16]. Building capital raises cost of capital, decreases expected profit and rate of return, and induces the bank to invest in riskier sector that is more riskier in the long run [16]. Conversely, strict regulation, income diversity, and bank size are the factors identified behind the negative relationship between capital regulation and bank risk [17–20]. However, studies also find that capital regulation has different impact on conventional and Islamic banks.
